China and the US are threatening to impose massive tariffs on each other in an escalating game of chicken — and it could end up hurting President Trump and the GOP at the ballot box.
On Tuesday, the Trump administration announced a list of more than 1,300 Chinese exports — including toys, electronics, shoes, clothing, and furniture — that it plans to hit with 25 percent tariffs, or border taxes. The tariffs are intended to punish Beijing for restricting US investment in China and stealing American intellectual property. Combined, they would affect about $50 billion worth of Chinese exports.
The very next day, China struck back, unveiling its own list of US exports that it plans to hit with 25 percent tariffs. The proposed package could affect more than 100 American-made products, including cars, airplanes, and soybeans — the top US agricultural export to China. Combined, they would cover about $50 billion worth of US exports, perfectly mirroring the US tariffs.
“If someone wants a trade war, we will fight to the end,” Wang Shouwen, China’s commerce vice minister, said at a press conference Wednesday announcing the move.
On Thursday China launched a challenge against the legitimacy of Trump’s tariffs at the World Trade Organization, which could set off a lengthy legal process.
China has not announced a date for implementing its tariffs because it says its move will depend on whether Trump actually pulls the trigger on his proposals. The White House is allowing US industries to weigh in on the proposed tariffs before making a final decision, and the list may ultimately change.
But even the prospect of a tit-for-tat trade war between the world’s two largest economies caused stocks on Wall Street to plunge Wednesday morning.
Trump defended the move on Twitter on Wednesday and pushed back against the idea that the US was on the brink of a trade war.
“We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US,” Trump wrote. “Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”
“When you’re already $500 Billion DOWN, you can’t lose!” he added.
But Trump certainly does have something to lose. China is deliberately targeting US industries like auto manufacturing that Trump has made a key focal point of his economic policy as president. And the health of those industries is of particular political importance as the midterm elections approach.
Beijing is also looking to hammer US agricultural exports produced in states that Trump and the GOP consider vital strongholds. If China imposed its proposed tariffs, it would cause demand for those US exports to slump in China, and that in turn could dent profits and cause layoffs in those industries.
“While Trump has a lot of support for getting tough with China on trade, if his actions start hurting farmers and manufacturing workers, that support may prove to be very thin,” Edward Alden, a trade expert at the Council on Foreign Relations, told me.
Trump’s trade attacks on China could hurt him politically
The tariffs that the US and China have proposed aren’t final yet.
The US tariffs are currently in a “notice and comment” stage, during which domestic industries will have the opportunity to express their opinions on the proposed policy. The administration intends to hold a public hearing on May 15, and companies can file official objections to the policy until May 22.
White House press secretary Sarah Huckabee Sanders said on Wednesday that if China doesn’t offer concessions to the US, the proposed tariffs will lock into place. “I would anticipate that if there are no changes to the behavior of China ... then we would move forward” with tariffs, she told reporters.
Analysts say Trump could end up walking back the scale of the tariffs considerably, especially if major companies like Walmart, which sells many of the Chinese products that would be affected by the tariffs, push back hard.
But Trump is more likely to be swayed by China’s quick and fierce response to his proposals.
China’s threat to put tariffs on soybeans is something the administration will take particularly seriously, analysts say. China dwarfs every other country in the world in its demand for soybeans and buys about a third of the US’s soybean crops. If Beijing imposes 25 percent tariffs on US soybean imports, it would deal a devastating blow to the industry.
As Bloomberg News’s Joshua Green notes, the biggest soybean producers in the US include Ohio, Iowa, Missouri, and Indiana — states in the heart of Trump country where neither the president nor his party wants to see economic instability during the 2018 or 2020 elections.
“The fact that Beijing put soybeans on its list is a signal that China is not going to pull any punches,” Christine McDaniel, who served as senior trade economist in the George W. Bush administration, told me.
New Chinese tariffs are a huge blow to U.S. farmers. China is overwhelmingly world's largest importer of soybeans. pic.twitter.com/geHd2olW7r— Joshua Green (@JoshuaGreen) April 4, 2018
Many of China’s other tariff choices are clearly politically motivated as well, like orange juice, much of which comes from the battleground state of Florida. Chinese tariffs on corn crops could hit swing states in the Midwest like Iowa.
Analysts say Beijing knows that targeting these industries is a good way to get Trump’s attention, since much of Trump’s trade policy, like renegotiating NAFTA, has been built around finding ways to increase jobs for domestic manufacturing. States in the Rust Belt like Michigan and Ohio are key states for auto production, and they’re also key states for Trump’s base.
Employment isn’t the only thing that would be affected. US tariffs on Chinese goods may make items such as, say, Chinese-made shoes more pricey. That, in turn, would mean US consumers could start buying fewer goods, slowing down the pace of the economy.
Trump may end up staying the course and going through with every tariff he proposed. Or he could try to negotiate a deal with China in which both countries impose less severe — and less politically sensitive — tariffs on each other.